WTO rules India to withdraw export incentives, sentiments mix

Nov 09, 2019

This autumn India lost the trade dispute with the US at the World Trade Organization (WTO) and was demanded to withdraw the export promoting schemes. The expectations of local steelmakers are mixed, and market insiders are expecting the government to appeal against the ruling.

On October 31, a WTO dispute panel ruled that the various export promoting schemes which are currently in force in India, violate global trade rules and should be withdrawn within 90‑180 days. Under existing WTO rules, a country can no longer offer export subsidies if its gross national product per capita has reached $1,000 per annum for three years in a row. India’s has already crossed the mark in 2013‑2015. The investigation was started in March 2018, following the USA complaint to WTO.

Export promoting schemes which local steelmakers can benefit from include Duty-Free Imports for Exporters Scheme and Merchandise Exports from India Scheme. The first one enables exporters to import relevant raw material and other inputs duty-free for production of export goods. Under the second scheme, an exporter can get a 2‑5% (of the FOB value of goods) reward by the government. "The incentives are different depending on the products and the countries. If one is exporting to the particular market, he can get additional incentives,” an Indian trader explained the scheme.

The expectations of market participants are mixed. While some sources think that the withdrawal of the incentives will affect steel exports, others are more optimistic. “Indian government will find other ways to compensate exporters, like tax breaks,” local steelmaker told Metal Expert.

Besides, the Indian government revises Foreign Trade Policy every five years. The new policy (2020‑2025) is expected to be declared in January 2020. “The schemes were applied for a reason and can be withdrawn and replaced from time to time if equired,” another source added.The government has not made any official announcement. However, the market is expecting that India will appeal against WTO’s decision.

In FY2019, India became a net importer and posted a 34% decline in export volumes (6.4 million t), according to JPC data. The country remained a net importer in April-September. Steel export skyrocketed by 73% in September, but it was not enough to make the annualized figure higher than imports in H1.